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N AT I O N A L C E N T E R F O R P O L I C Y A N A LY S I S
Patient, Heal Thyself: Why Congress Should Repeal
the Medicine Cabinet Tax on
Over-the-Counter Drugs
Policy Report No. 362
by Devon M. Herrick
November 2014
Americans spend nearly $3 trillion annually on medical care. Nearly
one-third of health care spending is on hospital care, and an additional
one-fifth of health care dollars are spent on physician care. By contrast,
drugs are a bargain at only about 10 percent of medical spending.
Executive Summary
Drugs are arguably the most efficient method to treat most medical
problems — often substituting for more expensive surgery or hospitalization.
Lost in the health care debate is another type of drug therapy that costs
consumers even less than prescription drug therapy and produces benefits far
in excess of its cost. Over-the-counter (OTC) nonprescription medications
comprise only about 1 percent of health care spending. Yet nearly 80 percent
of the time when Americans have a health ailment, they first reach for a
nonprescription drug. Americans spend an estimated $36 billion annually on
nonprescription drugs — most were originally prescription drugs.
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www.ncpa.org/pub/st362
Nonprescription drugs could be even cheaper, but one of the funding
mechanisms for the Patient Protection and Affordable Care Act (ACA)
amounted to a substantial tax increase on OTC drugs. Moreover, many states
charge sales taxes on nonprescription drugs.
The new Congress is expected to consider legislation to repeal some of
the taxes imposed by the ACA. The tax on OTC drugs is one they should
consider repealing. The resulting tax revenue is hardly enough to justify the
tax.
Bad Idea: Taxing OTC Drugs. The ACA made OTC drugs ineligible for
reimbursement through health reimbursement arrangements (HRAs), flexible
spending accounts (FSAs) or health savings accounts (HSAs). For those
who have them, these tax-advantaged accounts lower the cost of medications
significantly, because they allow account-holders to purchase drugs with
pretax dollars. For example, if an individual can use his pretax income to
purchase OTC medication, he escapes a so-called Medicine Cabinet Tax
equal to a more than 40 percent. Only a handful of states exempt OTC drugs
from state and local sales taxes. A back-of-the-envelope calculation suggests
Americans spend nearly $2 billion annually to pay sales taxes on OTC drugs.
By contrast, almost all states that tax OTC drugs do not tax prescription drugs
similarly. The dissimilar treatment is counterproductive, because the revenue
raised by taxing OTC drugs is a drop in the bucket compared to the value
Patient, Heal Thyself: Why Congress Should Repeal the Medicine Cabinet Tax
on Over-the-Counter Drugs
to society of encouraging greater use of nonprescription
drugs.
OTC Drugs Reduce Office Visits. Americans
collectively see their doctors more than a billion times
each year — about half of their visits are to see a primary
care physician. One survey of primary care physicians
estimated at least 10 percent of office visits were for
conditions that could have been treated at home. Indeed,
eliminating office visits for conditions that don’t require
a physician’s care is the primary way nonprescription
medications save money and avoid inconvenience.
Furthermore:
■■ The average price for a name-brand prescription
was $268 in 2011, compared to only $33 for a
prescription filled with a generic drug.
■■ OTC drug products are available in numerous
package sizes; many OTC drugs are $10 or less and
will last for months.
■■ Americans save themselves (and the health
care system) $6 to $7 for every $1 spent on a
nonprescription drug.
All told, 110 prescription drugs, including specificstrength doses of some drugs, have been switched to
over the counter since 1975. Millions of Americans use
these drugs. For example, the 20 million Americans
who were treating themselves with older, sedating OTC
allergy remedies (and the millions whose symptoms go
untreated) now have access to Claritin and to several
similar antihistamines for a mere fraction of the cost of
physician care and prescription Claritin. Another example
of a popular prescription drug moved to the OTC market is
the anti-ulcer drug Prilosec — the second best-selling drug
in 2001. The OTC generic version is currently available
for as little as $0.40 apiece at big box retailers — a savings
of 90 percent off what the prescription version cost prior
to being switched to over the counter. Indeed, when any
prescription drug is switched to the OTC market, the price
tends to drop sharply.
What Else Is Needed? When Americans think about
medical care, they tend to think of doctors, hospitals and
clinics — not about their medicine cabinets. But taking
a nonprescription drug is the most common way the
majority of Americans encounter the health care system
in a given year. Most of the medical care Americans
receive is self-care — at least initially. For most medical
conditions, people self-diagnose at the outset and treat
their symptoms with OTC drug remedies. Although
Americans see their doctors only about three times each
year, they pick up an OTC drug more than two dozen
times annually. Americans visit a store or pharmacy to
purchase OTC drugs eight times more frequently than
they see their doctor. And whereas prescription drugs are
only available at 54,000 pharmacies across the nation, an
additional 700,000 (nonpharmacy) retail outlets sell OTC
drugs.
Prior to the Durham-Humphrey Amendment of 1951,
patients relied on drugstores to advise them on the
appropriate drugs to purchase. Physicians also sold drugs
directly to patients.
Considering the immense benefits of convenient
access to nonprescription drugs, it makes little sense
to erect barriers to their use. Thus, the Food and Drug
Administration should move faster to approve drug
makers’ applications to switch appropriate drugs from
prescription-only to over the counter. Furthermore,
Congress and the states should repeal taxes on
nonprescription drugs.
About the Author
Devon M. Herrick is a senior fellow with the National Center for Policy Analysis. He concentrates on such health
care issues as Internet-based medicine, health insurance and the uninsured, and pharmaceutical drug issues. His
research interests also include managed care, patient empowerment, medical privacy and technology-related issues.
Herrick is past Chair of the Health Economics Roundtable of the National Association for Business
Economics.
Herrick received a Doctor of Philosophy in Political Economy degree and a Master of Public Affairs degree from
the University of Texas at Dallas with a concentration in economic development. He also holds a Master of Business
Administration degree with a concentration in finance from Oklahoma City University and an M.B.A. from Amber
University, as well as a Bachelor of Science degree in accounting from the University of Central Oklahoma.
2
Introduction
Over-the-Counter Drugs
It is hardly news that health care
is a significant portion of Americans’
budgets. Americans spend nearly
$3 trillion annually on medical
care, consuming nearly one-fifth
of national income.1 Drugs are
arguably the most efficient method
to treat most medical problems —
often substituting for surgery or
hospitalization. At $329 billion in
spending annually, prescription drugs
account for just over 10 percent of
health care expenditures.2 By contrast,
Americans spend twice as much on
physician care as on drugs and three
times more on hospital care.
Economics involves the study of
the effects of positive and perverse
incentives on resource allocation.
There is a saying in economics: If
you want to encourage something,
subsidize it; if you want to discourage
something, tax it. In this regard,
boosting taxes on OTC drugs is a step
in the wrong direction.
Lost in the health care debate is
another type of drug therapy that
costs consumers even less and
produces benefits far in excess of its
cost. Americans spend an estimated
$36 billion annually on over-thecounter (OTC) nonprescription
medications.3 Nonprescription drugs
— most of which were at one time
only available with a prescription
— are a great resource. OTC drugs
comprise only about 1 percent of
our health care spending [see Figure
I], despite the fact that nearly 80
percent of the time when Americans
have a health ailment, they first
reach for a nonprescription drug.4
Unfortunately, one of the funding
mechanisms for the Patient Protection
and Affordable Care Act (ACA)
amounted to a substantial tax increase
on nonprescription drugs. Moreover,
though only one state charges (a
modest) sales taxes on prescription
drugs, most states tax nonprescription
drugs.
The new Congress is expected to
consider legislation to repeal some of
the taxes imposed by the Affordable
Care Act. The tax on OTC drugs is
one they should consider repealing.
Bad Idea: Taxing OTC Drugs.
Unfortunately, the Affordable Care
Act made OTC drugs ineligible
for reimbursement through health
reimbursement arrangements
(HRAs), flexible spending accounts
(FSAs) and health savings accounts
(HSAs).5 For those who have them,
these tax-advantaged accounts lower
the cost of medications significantly,
because they allow account holders
to purchase drugs with pretax dollars.
Until 2011, many families used
these accounts to purchase overthe-counter medications. Thus, the
Affordable Care Act essentially taxes
nonprescription medications. For
example:
■■ A middle-income family may
face a marginal tax rate of 25
percent, a payroll tax of 15.3
percent and possibly a state and
local tax of 5 percent.
■■ All told, this equates to a
tax of 45.3 percent; but if an
individual can use his pretax
income to purchase an OTC
medication, he escapes that
45.3 percent tax — a significant
savings compared to purchasing
OTC drugs with after-tax
dollars.
■■ This so-called Medicine
Cabinet Tax is equal to a hike
in price of more than 40 percent
for many consumers buying
drugs over the counter.6
Moreover, the resulting revenue
is hardly enough to justify the tax.
The Joint Committee on Taxation
estimated this provision would only
raise approximately $5 billion for the
Treasury over 10 years.7 Two years
later, the Congressional Budget Office
valued the tax at even less, estimating
that repealing the provision would
only cost the Treasury $4 billion over
the 2013-2022 period.8
OTC drugs can still be purchased
through a tax-preferred account if
they are prescribed by a physician.
However, the effort of obtaining a
prescription for an OTC drug would
negate the savings from choosing an
OTC drug to begin with.
There is broad, bipartisan support
in Congress for repealing the
regulations that forbid consumers
from using their FSAs, HSAs or
HRAs to purchase OTC drugs, but
gridlock on other issues has thus far
inhibited progress in repealing this
ill-conceived tax. As it stands, the tax
treatment of OTC drugs is limiting
Americans’ preferred, and least
expensive, method of care.
Sales Tax on OTC Drugs. Only
a handful of states exempt OTC
drugs from state and local sales
taxes.9 [See the Appendix Table.] A
back-of-the-envelope calculation
suggests Americans spend nearly $2
billion annually to pay sales taxes on
OTC drugs. By contrast, almost all
states that tax OTC drugs do not tax
prescription drugs similarly. At the
very least, it makes sense to tax OTC
drugs at the same rate as prescription
drugs and to have similar tax policies
on both types of drugs. The dissimilar
treatment is counterproductive, as the
revenue raised by taxing OTC drugs
3
Patient, Heal Thyself: Why Congress Should Repeal the Medicine Cabinet Tax
on Over-the-Counter Drugs
Figure I
Drug Spending as a Proportion of All Health Care
Expenditures (2012)
Dental Care
Physician
Services
20%
The Most Inexpensive
Therapy
4%
Other Medical Goods
and Services
34%
Hospital Services
31%
Rx Drugs
10%
OTC Drugs
1%
Source: "National Health Expenditures by Type of Service and Source of Funds, CY 1960-2012," Centers for Medicare & Medicaid
Services, U.S. Department of Health and Human Services, page last modified January 7, 2013. Also see Jay Sirois and Stefanie
Ferreri, “OTC Combination Products in Pharmacist-Assisted Self-Care,” American Pharmacists Association, June 1, 2013.
Figure II
Approximate Cost of a $1 OTC Drug
Taxes
$0.49
Drug Cost
$0.51
Source: Author's calculations based on a marginal tax rate of 25 percent, payroll taxes of 15.3
percent, state & local income tax rate of 5 percent and a sales tax of 6.7 percent. To purchase
$1 worth of nonprescription drugs in many states could require up to $1.95 in pretax income;
[($1+$0.067)/1-(.25+.153+.05)].
Note: This calculation does not include implicit taxes, such as the corporate income tax.
4
is a drop in the bucket compared to
the value to society of encouraging
greater use of nonprescription drugs.
[See Figure II.]
Americans collectively see their
doctors more than a billion times
each year. About half of office visits
are to see a primary care physician.
Americans make another 136 million
visits to hospital emergency rooms
and 126 million visits to outpatient
departments annually.10 Nearly twothirds of physician visits result in a
prescription.11
OTC Drugs Substitute for
Office Visits. Patients often
schedule physician visits merely
to get a prescription or renew one.
Unnecessary physician visits are one
way in which patients waste health
care dollars, as many physician visits
are for conditions patients could
easily have treated at home with a
nonprescription drug. One survey of
primary care physicians estimated
that at least 10 percent of office visits
were for conditions that could have
been treated at home.12 In the same
survey, nearly 7-in-10 physicians
recommended patients experiencing
ailments such as headache, fever,
cold or upset stomach first try an
over-the-counter remedy before
seeking physician care.13 There are
numerous OTC drugs to treat these
symptoms. Just a few minutes spent
on the Internet to research remedies
for a condition is often enough to find
an OTC drug to alleviate symptoms,
eliminating the need for a costly
face-to-face office visit. Indeed,
eliminating office visits for conditions
that don’t require a physician’s care
is the primary way nonprescription
medications save money and avoid
inconvenience. For every $1 spent
on a nonprescription drug [see Figure
III]:14
■■ Americans save about $1.60
compared to what a prescription
drug would cost.
■■ Americans additionally save
about $4.90 by avoiding
a clinical visit to obtain a
prescription.
■■ Thus, OTC drugs save $6-$7.
A report by the Health Care Cost
Institute found the average price for
a name-brand prescription drug was
$268 in 2011, compared to only $33
for a prescription filled with a generic
drug.15 It is difficult to estimate the
average cost of an OTC drug because
so many different products are
available in numerous package sizes
at 750,000 retail outlets. However,
many purchases are $10 or less and
often will last for months.
Self-Treatment. When Americans
think about medical care, they tend to
think of doctors, hospitals and clinics
— not about their medicine cabinets.
But taking a nonprescription drug is
the most common way the majority
of Americans encounter the health
care system in a given year. Most of
the medical care Americans receive
is self-care — at least initially. For
most medical conditions, people
self-diagnose at the outset and treat
their symptoms with OTC drugs.
Americans see their doctors only
about three times each year, yet they
pick up an OTC drug more than two
dozen times annually, and they visit a
store or pharmacy to purchase OTC
drugs eight times more frequently
than they make a trip to their doctor.
And whereas prescription drugs are
only available at 54,000 pharmacies
across the nation, an additional
700,000
Figure III
(nonpharmacy)
Costs vs. Benefits of OTC Drugs
retail outlets sell
Total Savings
OTC drugs.16
($6 - $7)
[See Figure IV.]
A survey of
Savings
drugstores and
Compared to
retail stores in
Rx Drug
($1.60)
Massachusetts
found big-box
retailers are
Physician Visit
Avoided
providing strong
competition
in the
nonprescription
market.
Researchers
$1 in OTC
Spending
found that
Walmart and
Costs
Benefits
Target offered
the lowest
Source: "Your Health at Hand," Consumer Healthcare Products Association, 2014 .
average prices
currently available. If everyone using
for brand-name
17
OTC drugs sought the advice of a
OTC drugs as well as generics.
physician, the number of primary care
That individuals routinely selfphysicians needed would be 25 times
treat is evident across a number of
greater than the number we currently
measures. An opinion piece in the
have.20
British Medical Journal estimated
A physician office visit is not
that only one out of 40 medical
only
costly, but often inconvenient.21
symptoms results in a medical
Fortunately, consumers often don’t
consultation.18 Additionally, at
some point in their lives, between
have to consult a doctor to gain
15 percent and 40 percent of the
access to an effective treatment. The
general population experiences
information consumers obtain on the
gastrointestinal symptoms —
Internet can allow patients to make
including rectal bleeding, irritable
an informed decision about which
bowel syndrome and chronic
symptoms warrant a consultation.22 A
indigestion. Yet only about 25 percent
few minutes of searching the web can
to 35 percent of people experiencing
reveal likely causes for symptoms,
these symptoms bother to discuss
potential treatments and whether it is
them with their doctor.19 And a twoworth the time and effort to pursue a
decades-old estimate found that if
treatment.23
only 2 percent of Americans sought
Switching to OTC. All told, 110
professional care rather than treating
prescription drugs, including specificthemselves with a nonprescription
strength doses of some drugs, have
drug, the increase in office calls
been switched to over-the-counter
would require 50 percent more
since 1975.24 Millions of Americans
primary care physicians than are
5
Patient, Heal Thyself: Why Congress Should Repeal the Medicine Cabinet Tax
on Over-the-Counter Drugs
Cost Savings for OTC Claritin
When Claritin moved to the OTC market in 2002, its sales increased
dramatically, while the dollar-value of prescription antihistamines fell by
about one-quarter the following year due to the lower prices for Claritin.30
■■ Before moving to the OTC market, a 30-day supply of prescription
Claritin cost $79.99.31
■■ In 2014, Claritin and its competitors were available at much lower
prices — especially in generic form.
■■ A 30-day supply of Claritin was available for $18.88 at Walmart; a
70-day supply of Allegra (Fexofenadine) was only $29.88; a similar
quantity of Zyrtec (Cetirizine) cost $34.94.32
■■ That works out to a daily cost range of $0.43 to $0.63 cents per
day, compared to $2.67 per day for prescription Claritin just over a
decade earlier, before it was available over the counter.
■■ In 2014, a 120-day supply of generic Claritin (Loratadine) was
$12.75 — just $0.11 cents a day. Although some of the price
decrease was due to losing patent protection, the switch to the OTC
market was responsible for even more of the 96 percent drop in the
daily cost.
use these drugs. For example,
antihistamines are a popular class of
drugs sold over the counter, with well
over a dozen different formulations
available over the past 40 years.25 It
is estimated that 20 million allergy
suffers — almost half the total
number of Americans suffering
from allergies — were self-treating
with sedating OTC antihistamines
in 2002.26 One of the best-selling
allergy medications, Claritin — a
second-generation (nonsedating)
antihistamine and a popular brand
name for the generic drug Loratadine
— was moved to the OTC market in
December 2002.27 An estimate of the
effects of allowing Claritin to be sold
over the counter found consumers
substituted OTC Claritin for more
expensive prescription medications,
generating significant savings for
themselves and for health plans.28
The 20 million Americans who
were treating themselves with older,
6
sedating OTC allergy remedies (and
the millions whose symptoms go
untreated) now have access to Claritin
and to several similar antihistamines
for a mere fraction of the cost of
physician care and prescription
Claritin.29 [For more information on
Claritin’s switch to over-the-counter
status, see the sidebar, “Cost Savings
for OTC Claritin.”]
Another example of a popular
prescription drug moved to the
OTC market is the anti-ulcer drug
Prilosec — the second best-selling
drug in 2001.33 When it became
available over the counter in fall
2003, it sold for around 70 cents per
capsule compared to almost $4 for
the prescription version. The generic
version is currently available for
as little as $0.40 apiece at big box
retailers — a savings of 90 percent
off the prescription version. Prilosec
(Omeprazole) now competes with
Prevacid (Lansoprazole) and Nexium
(Esomeprazole), all of which are
sold over the counter. These were all
top-selling prescription drugs prior to
being switched from Rx to OTC.
Another OTC success story is
nicotine replacement therapy to
assist with smoking cessation. The
number of people trying to quit
smoking skyrocketed after Nicorette
was approved for sale over the
counter. The benefit to society from
nicotine replacement therapies being
readily available over the counter is
calculated at more than $2 billion
annually.34 In the past two years, two
first-in-class prescription medications
have been approved for OTC sales.
Oxytrol (Oxybutynin), a patch for
overactive bladder, was approved
in 2013. Nasacort (triamcinolone
acetonide) and Flonase (fluticasone
propionate), both nasal steroids
for allergic rhinitis, have also
been approved for sale without a
prescription.35 One of the most widely
used prescription drugs for years has
been the cholesterol-lowering drug
Lipitor. Pfizer, the maker of Lipitor, is
weighing whether to attempt to apply
for approval to bring this drug to the
OTC market.36
Over-the-counter access to
popular prescription drugs is saving
Americans billions of dollars in
prescription drug costs and untold
inconvenience. OTC drugs such
as Prilosec, Claritin, Nasacort and
Oxytrol make it easier and cheaper
for consumers to obtain treatment.
What Else Is Needed? People
who don’t know the history of U.S.
drug regulation probably assume
prescription drugs have been around
as long as we have had doctors.37
That is not the case. Prior to the
Durham-Humphrey Amendment of
1951, the class of drugs known as
“prescription” drugs did not exist.
Patients relied on drugstores to advise
them on the appropriate drugs to
purchase. Physicians also sold drugs
directly to patients. Indeed, in the
19th century many physicians sold
patent medications and elixirs (many
of dubious quality) — as did so-called
snake oil salesmen. Virtually all
drugs were sold over the counter until
the Food and Drug Administration
created prescription drugs in 1951.38
Limiting access to drugs available
only by prescription requires patients
to schedule a costly physician visit
just to renew a prescription. Of
course, many physician visits are
valuable, but some are unnecessary.
A decade-old study by the European
Self-Medication Industry found
that moving a mere 5 percent of
prescription drugs to the OTC market
would save publicly-funded health
systems across Europe more than $20
billion a year.39 A similar move in
the United States would undoubtedly
save much more than that when
physician visits (necessary to gain
access to a prescription) are added to
the total. When a prescription drug
is switched to the OTC market, the
price drops sharply.
Although the FDA has made
headway in switching prescription
drugs to the OTC market in recent
years, more needs to be done. The
European Union has moved faster
than the United States in this regard.
North America consumes about 42
percent of the global share of the
pharmaceutical market, but only
half that amount of the OTC drug
market.40 This strongly suggests the
United States is missing out on an
opportunity to lower our prescription
drug bills while boosting self-care
and convenience in the process.41
One example
Figure IV
of a missed
Number of Retail Outlets
opportunity is
next-generation
OTC Drugs
sunblock, which
has been used
safely in Europe
for close to a
decade.42 The
last time the
FDA approved
a new sunscreen
754,000
ingredient was in
2002 — despite
the more advanced
Rx Drugs
sunscreen options
54,000
being used in
(Nonpharmacy
(Retail Pharmacies)
Europe.43 Due
Retailers and Retail
Pharmacies)
to foot-dragging
Source: “Statistics on OTC Use,” Consumer Healthcare Product Association.
by the FDA,
Congress passed
Nonprescription, over-the-counter
a bill in 2014 to prod the drug
(OTC) drugs comprise only
agency into finally approving better
about 1 percent of our health care
sunblock.44 Sunscreens sold in the
spending, yet nearly 80 percent
United States can use only three
of the time when Americans have
ingredients to protect people from
a health ailment, they first reach
harmful UVA radiation, compared
for a nonprescription drug. The
to seven ingredients that have been
ACA substantially boosts taxes on
nonprescription drugs for the many
approved in Europe. There are many
Americans who use tax-advantaged
other examples of drugs available
accounts to cover their medical
in Europe that are not available to
costs. Moreover, all but a handful
American consumers without a
of states charge sales taxes on
prescription. Considering that only
drugs sold without a prescription.
1 percent of our health expenditures
Considering the immense benefits of
are for nonprescription medications,
convenient access to nonprescription
it makes sense to increase access to
drugs, it makes little sense to erect
the drugs that help Americans care for barriers to their use. Congress and
themselves.
the states should repeal taxes on
nonprescription drugs.
Conclusion
Drugs are the most efficient way
to treat most medical problems
— accounting for only about 10
percent of health care expenditures.
Americans spend twice as much
on physician care and three times
as much on hospital care as they
spend on prescription drugs.
7
Patient, Heal Thyself: Why Congress Should Repeal the Medicine Cabinet Tax
on Over-the-Counter Drugs
Notes
“National Health Expenditure Projections 2012-2022,” Centers for Medicare and Medicaid Services, 2012, Table 1. Available at http://www.
cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/downloads/proj2012.pdf.
1.
Jennifer Lyle and Lauren Caskey, “Medicine use and shifting costs of healthcare: A review of the use of medicines in the United States in 2013,”
IMS Institute for Healthcare Informatics, April 2014.
2.
Jay Sirois and Stefanie Ferreri, “OTC Combination Products in Pharmacist-Assisted Self-Care,” American Pharmacists Association, June 1,
2013. Available at: http://www.pharmacist.com/otc-combination-products-pharmacist-assisted-self-care.
3.
“The Value of OTC Medicine to the United States,” Booz & Co. report prepared for the Consumer Healthcare Products Association, January
2012. Available at http://www.chpa.org/ValueofOTCMeds2012.aspx.
4.
Section 9003 of the Affordable Care Act. See “Affordable Care Act: Questions and Answers on Over-the-Counter Medicines and Drugs,”
Internal Revenue Service, U.S. Department of the Treasury, updated January 9, 2014. Available at http://www.irs.gov/uac/Affordable-Care-Act:Questions-and-Answers-on-Over-the-Counter-Medicines-and-Drugs.
5.
John Berlau, “Health Care- Fix middle-class ‘medicine cabinet tax’ in reconciliation,” Competitive Enterprise Institute, March 23, 2010.
Available at http://cei.org/blog/health-care-fix-middle-class-medicine-cabinet-tax-reconciliation.
6.
“Estimated Revenue Effects Of The Amendment In The Nature Of A Substitute To H.R. 4872, The ‘Reconciliation Act Of 2010,’ As Amended,
In Combination With The Revenue Effects Of H.R. 3590, The ‘Patient Protection And Affordable Care Act (‘PPACA’),’ As Passed By The Senate,
And Scheduled For Consideration By The House Committee On Rules On March 20, 2010,” Joint Committee on Taxation, March 20, 2010.
Available at https://www.jct.gov/publications.html?func=startdown&id=3672.
7.
“H.R. 5842: Restoring Access to Medication Act of 2012,” Cost Estimate, Congressional Budget Office, June 4, 2012. Available at http://www.
cbo.gov/sites/default/files/cbofiles/attachments/HR5842.pdf.
8.
Currently, the list of states includes Florida, Maryland, Minnesota, New Jersey, New York, Pennsylvania, Texas, Vermont, Virginia and the
District of Columbia. Illinois has a sales tax rate of 1 percent on both prescription and nonprescription drugs. See “State Sales Tax Rates and Food
& Drug Exemptions,” Federation of Tax Administrators, January 1, 2014. Available at http://www.taxadmin.org/fta/rate/sales.pdf.
9.
“Health, United States, 2013, With Special Feature on Prescription Drugs,” Centers for Disease Control and Prevention, U.S. Department of
Health and Human Services, DHHS Publication No. 2014-1232, May 2014, Table 89. Available at http://www.cdc.gov/nchs/data/hus/hus13.pdf.
10.
A drug is either provided or prescribed in 64.8 percent of office visits. When a patient receives a prescription during the course of an office
visit, the average number of prescriptions written is 2.25 per patient. David A. Woodwell and Donald K. Cherry, “National Ambulatory Medical
Care Survey: 2002 Summary,” National Center for Health Statistics, Advance Data from Vital and Health Statistics, Number 346, August 26,
2004. Available at http://www.cdc.gov/nchs/data/ad/ad346.pdf.
11.
“Your Health at Hand (YHH): Perception of over-the-counter medicine in the U.S.,” slide titled “Key Findings – Physicians,” Survey by
StrategyOne for Consumer Healthcare Products Association, November 24, 2010. Also see Paul A. London and Daniel Shostak, “Potential
Reduction in Unnecessary Visits to Doctors from Safe and Appropriate Use of OTC Medicines Could Save Consumers and Taxpayers Billions
Annually,” Paul A. London and Associates, June 17, 2011. Available at http://www.yourhealthathand.org/images/uploads/London_Cost_Saving_
Study_061711.pdf.
12.
13.
Ibid.
14.
Ibid.
Gregory Stanton, Carolina Herrera and Julianne Nelson, “Spending on Prescriptions in 2011,” Health Care Cost Institute, Issue Brief No. 4,
September 2012. Available at http://www.healthcostinstitute.org/files/HCCI_IB4_Prescriptions.pdf.
15.
8
16.
“Statistics on OTC Use,” Consumer Healthcare Product Association.
17.
“Office of Consumer Affairs Survey of Over-the-Counter Medication Finds Pharmacies, Name Brands Most Costly,” Office of Consumer
Affairs and Business Regulation, Commonwealth of Massachusetts, February 22, 2012. Available at http://www.mass.gov/ocabr/pressreleases/20120222-otc-survey.html.
18.
Roger Jones, “Self Care,” British Medical Journal, Vol. 320, No. 7235, March 4, 2000, page 596.
19.
Roger Jones and D. Murfin, eds., Gastrointestinal Problems in General Practice (Oxford: OUP, 1993).
Simon Rottenberg, “Unintended Consequences: The Probable Effects of Mandated Medical Insurance,” Regulation, Vol. 13, No. 2, Summer
1990, pages 27-28. Available at http://object.cato.org/sites/cato.org/files/serials/files/regulation/1990/7/v13n2-3.pdf.
20.
21.
Devon M. Herrick, “Convenient Care and Telemedicine,” National Center for Policy Analysis, NCPA Policy Report No. 305, November 2007.
Ted R. Tyson, “The Internet: Tomorrow’s Portal to NonTraditional Health Care Services,” Journal of Ambulatory Care Management, Vol. 23,
No. 2, April 2000, pages 1-7.
22.
Devon M. Herrick, “Consumer-Driven Health Care: The Changing Role of the Patient,” National Center for Policy Analysis, NCPA Policy
Report No. 276, May 10, 2005. Available at http://www.ncpa.org/pdfs/st276.pdf.
23.
“Ingredients & Dosages Transferred From Rx-to-OTC Status (or New OTC Approvals),” Consumer Healthcare Products Association, July 28,
2014. Available at http://www.chpa.org/switchlist.aspx.
24.
25.
Ibid.
26.
Sandra Levy, “Health Plans Pleased with Allergy Drug’s OTC Switch,” Drug Topics, December 16, 2002.
“OTC Claritin to Hit Markets by Mid-December,” FDAnews Daily Bulletin, FDAnews.com, December 3, 2002; and “Claritin Receives OTC
Status,” Chemical Market Reporter, December 2, 2002.
27.
Patrick W. Sullivan, Kavita V. Nair and Bimal V. Patel, “The Effect of the Rx-to-OTC Switch of Loratadine and Changes in Prescription Drug
Benefits on Utilization and Cost of Therapy,” American Journal of Managed Care, Vol. 11, No. 6, June 1, 2005.
28.
Since Claritin (Loratadine) was approved for OTC sales in 2001, Allegra (Fexofenadine) and Zyrtec (Centirizine) have also been approved for
over-the-counter sales.
29.
David Vaczek, “Top 200 Prescription Drugs of 2003,” Pharmacy Times, July 2004. Due both to tightening of health plan requirements and the
movement of Claritin to the OTC market, sales of nonsedating antihistamines fell 22 percent from July 2003 to June 2004. 30.
Average Wholesale Price roughly approximates retail pharmacy price. See 2002 Drug Topics Redbook (Montvale, N.J.: Thompson Medical
Economics, 2002).
31.
32.
Prices compared online, August 18, 2014.
Associated Press, “Over-the-Counter Prilosec to Debut: Proctor & Gamble Set for Monday Rollout of Heartburn Pill,” October 15, 2003.
Available at http://www.nbcnews.com/id/3076971/ns/health-digestive_diseases/t/over-the-counter-prilosec-debut/.
33.
Chris Stomberg, Tomas Philipson, Margaret Albaugh and Neeraj Sood, “Utilization effects of Rx-OTC switches and implications for future
switches,” Scientific Research, Vol. 5, No. 10, October 2013. Available at http://www.scirp.org/journal/PaperInformation.aspx?PaperID=37789.
34.
“Over-the-Counter Flonase Allergy Relief Approved,” WebMD.com, July 28, 2014. Available at http://www.webmd.com/news/20140728/otcflonanse-allergies.
35.
Michael Johnsen, “Lipitor may be the first statin to switch to OTC,” Drugstore News, March 7, 2014. Available at http://www.drugstorenews.
com/article/lipitor-may-be-first-statin-switch-otc-heres-why.
36.
37.
Drugs such as marijuana, cocaine and heroin became illegal to sell after their addictive characteristics were discovered.
The Durham-Humphrey Amendment created a class of drugs that required medical supervision and restricted sales to persons who had a
prescription from a medical practitioner. See “Milestones in U.S. Food and Drug Law History,” U.S. Food and Drug Administration, FDA
Backgrounder, May 3, 1999.
38.
9
Patient, Heal Thyself: Why Congress Should Repeal the Medicine Cabinet Tax
on Over-the-Counter Drugs
“The Economic and Public Health Value of Self-Medication,” Association of the European Self-Medication Industry (AESGP), June 2004. Available at http://www.aesgp.eu/media/cms_page_media/68/2004study.pdf.
39.
40.
Andy Tisman, “The Rising Tide of OTC in Europe,” IMS Health, 2010.
41.
Cathy Taylor, “There’s better sunblock, but not for you,” Orange County Register, August 8, 2014.
Katherine Mangu-Ward, “House to FDA: We Need Better Sunscreen Now! Because Cancer,” Reason, July 29, 2014. Available at http://reason.
com/blog/2014/07/29/house-to-fda-we-need-better-sunscreen-no.
42.
Chavie Lieber, “Why You Shouldn’t Be Buying Your Sunscreen in America,” Racked.com, July 16, 2014. Available at http://racked.com/
archives/2014/07/16/spf-sunscreen-fda-skin-cancer-sun-lotion-sunscreen-innovation-act-loreal.php.
43.
44.
10
Michelle Hackman, “House Passes Bill to Speed FDA’s Sunscreen Approvals,” Wall Street Journal, July 28, 2014.
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Appendix Table
State Sales Taxes on Drugs
Sales Tax Rate
4.00%
0.00%
5.60%
6.50%
7.50%
2.90%
6.35%
0.00%
6.00%
4.00%
4.00%
6.00%
6.25%
7.00%
6.00%
6.15%
6.00%
4.00%
5.50%
6.00%
6.25%
6.00%
6.875%
7.00%
4.225%
0.00%
5.50%
6.85%
0.00%
7.00%
5.125%
4.00%
4.75%
5.00%
5.75%
4.50%
0.00%
6.00%
7.00%
6.00%
4.00%
7.00%
6.25%
5.95%
6.00%
5.30%
6.50%
6.00%
5.00%
4.00%
Rx Drugs
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
1.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
OTC Drugs
4.00%
0.00%
5.60%
6.50%
7.50%
2.90%
6.35%
0.00%
0.00%
4.00%
4.00%
6.00%
1.00%
7.00%
6.00%
6.15%
6.00%
4.00%
5.50%
0.00%
6.25%
6.00%
0.00%
7.00%
4.225%
0.00%
5.50%
6.85%
0.00%
0.00%
5.125%
0.00%
4.75%
5.00%
5.75%
4.50%
0.00%
0.00%
7.00%
6.00%
4.00%
7.00%
0.00%
5.95%
0.00%
0.00%
6.50%
6.00%
5.00%
4.00%
Source: Federation of Tax Administrators, January 2014. Available at http://www.taxadmin.org/fta/rate/sales.pdf.
1
11
Patient, Heal Thyself: Why Congress Should Repeal the Medicine Cabinet Tax
on Over-the-Counter Drugs
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